Written Commentary
by Stephen Platt and Mike McElroy
Price Overview
The petroleum complex traded under modest pressure, with crude values attracting support early in the session following the DOE report. Nervousness continues over the impact a strong dollar and slowing economic growth will have on consumption. These concerns are being offset by reduced Russian supplies and questions over the ability and desire of key OPEC members to expand production. Fear of tightness in crude and products continues to be expressed ahead of anticipated demand growth in 2023.
These fears were expressed by the CEO pf Conoco Philips on Tuesday in remarks to the Houston Producers Forum. He suggested that “ultimately demand will go back to pre-pandemic levels” while suggesting a lack of spare capacity from OPEC and a plateauing of US production, which should grow by a combined 2 mb between this year and next, should limit supply growth. With peak demand as much as 10-20 years out and economic prospects far from certain, volatility will likely remain high.
The DOE report for the week ended July 15th showed commercial crude inventories falling .4 mb, with 5 mb withdrawn from the SPR. Gasoline stocks rose 3.5 mb while distillate fell by 1.1. Domestic crude production was estimated at 11.9 mb while net imports of crude were indicated at 2.76 mb with net exports of crude and products at .7. Of interest was a resurgence in total disappearance to 21.0 mb compared to 18.7 last week, with gasoline disappearance at 8.5 mb/d compared to 8.1 while distillate rose to 3.7 mb compared to 3.4. Refinery utilization slipped to 93.7 compared to 94.9 percent last week.
The questions over the availability of natural gas into to Europe along with the uncertain global petroleum supply prospects given tight inventory levels are key supporting influences and suggests the potential for crude to test the 109-110 level basis September.
Natural Gas
The market had seen some consolidation after Monday’s move higher, but additional stop loss buying was flushed out above the 7.50 level at mid-day today as prices quickly spiked up near 7.70. Support continues to be offered by hot temperatures that have settled in across the US, as gas demand for power generation hit an all-time high yesterday that is likely breached again today. Production added underlying support, as the weekend increases to the 97 bcf/d level faded back near 95 today in the same pattern that we have seen for weeks. The 8-dollar level is now in striking distance for the bulls but will need to be reached quickly as the heat eventually runs its course and renewable generation improves into the end of the week. As with the rally, any pullback could quickly gain steam with initial support likely in the 7-dollar area and then down at the 100-day moving average near 6.77.
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